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No, that was Ron's original method, selling 2 delta puts on different futures markets. Karen, at least in the TastyTrade videos, said she sold 5 delta puts and 10 delta calls because "the market crashes down faster than it does up".
Actually, it was more like 2 SD minus a certain # of points (for extra cushion) is how she first described it and it ended up being near a 5 delta (on the put side).
Also she doesn't use futures options as much and relies on her portfolio margin to sell the cash index. I think that should be less leverage than the futures. Can anyone confirm this? 3 delta 50-60 dte span margin is approximately 500, this should translate to 1000 margin for the $SPX equivalent to be on equal terms.
Ron99, I have always had some questions about your strategy of selling naked ES puts. And now that you have finally had to exit at a loss, I think it is the right time to bring them up.
It appears that with each profitable trade, your account size has grown and your position size has grown. I am guessing that you had on a very large position of short Nov ES 1650 naked puts which you sold for 3.90.
After taking this loss, how long or how many trades, assuming you can/will trade the same amount of ES puts, will it take to recover what you lost earlier this week? In an earlier post someone asked a similar question and I believe you said it will take about 4 trades to recover the losses. I am guessing that is only if you trade the same number of contracts as you did when you took this loss.
Realistically for most traders, after taking a loss like this, their trading power will be severely limited. So I doubt they would be able to sell the same amount of ES puts as before.
How many successful ES naked put trades were you able to exit at 50% premium profit before finally taking this past weekís loss since you say that you are still profitable trading this way?
I have always heard people say that option selling is about a series of very small wins but when a loss does occur, it is huge and may wipe out all the profits and more from those previous small wins.
Letís just say that I stick to selling only 10 ES puts with a $20,000 account. I choose a strike with delta under 0.04 and premium of 4.00 and with around 90-110 days until expiration. After I get filled, I will enter a GTC order to buy back at half my entry thus locking in 50% of the premium as profit. I do this trade after trade after trade. Making about $1,000 per trade. Letís say I am successful for eighteen successive trades and I have a profit of $18,000.
Finally a week like this happens and my 3x IM is hit and I exit at a premium of 36.00 for a loss of $18,000 ($16,000 minus the $2,000 original premium credit) which wipes out most of the profits from my previous eighteen winning trades. Keep in mind that I did not increase position size and if I did increase position size which is highly likely due to account size growing and the complacency of consistent success from the previous eighteen trades, not only would I have given back all my profits, I would have taken a huge loss.
Psychologically and confidence wise this cannot be good now the markets have rallied and the premium on the position which you took the loss is back down to manageable levels, yet you exited at a big loss. I know I would be beyond frustrated that a blip forced me to give back months and maybe years of small profits just to see the premium deflate so quickly.
So Ron99 how will you recover your losses from this week as it seems your position size has grown into the thousands since you first started trading ES naked puts?
I've compared them in the past (there's actually a portfolio margin calculator online) and they were pretty close. Definitely not 2:1 difference. If anything portfolio margin offered slightly more leverage.